MEDIA FORUM: Will the BBC run ads if the licence fee is removed?

Has the time come to get rid of the BBC's licence fee? The Conservative Party certainly seems to think it has. Alasdair Reid investigates the issue.

It's a fair assumption that the BBC's high command isn't exactly shaking in its boots right now but, for what it's worth, the Conservative Party has just put the licence fee back on the agenda. On Newsnight last week, Jeremy Paxman stated that the Tory leader, Iain Duncan Smith, probably could not run a sweet shop, let alone a political party (or, indeed, the country) and, Rottweiler though he is, Paxman probably represents a moderate line within the BBC when it comes to assessing the Tories' prospects.

So the corporation as a whole is probably laughing behind its hand at the hints at a manifesto commitment dropped last week by the shadow culture spokesman, John Whittingdale. He is believed to be looking to assemble a think tank to examine the issue, but he's already making it clear (or as clear as he is able) that "the status quo is not an option".

The status quo is a compulsory household tax of £116 a year that delivers a total of £2.6 billion into the BBC coffers. In return, the BBC promises to run public service television and radio services. And this is where the corporation has increasingly been in breach of its contract, safe in the knowledge that it is so much a part of the cultural and economic structure of the broadcasting world that to challenge it would be to threaten to pull the whole house down.

But the Tories are prepared to challenge that assumption. Whittingdale, apparently, wants to do away with the licence fee and to replace it with funding from three sources - subscription revenue (principally from the new digital channels), advertising and, to fund genuine public service programming that the rest of the market can't or won't deliver, a direct grant from the Treasury.

Unfortunately, though, we can't be sure about this because during what was meant to be his biggest moment in the spotlight to date - his first major policy push as a shadow spokesman - Whittingdale went to ground.

It's easy to knock the Tories these days but if you're a political ingenue, it's stunning to discover just how feeble the Conservative Party machine actually is. Last week, the press officer charged with promoting the wit and wisdom of Whittingdale was unsure about if his man was thinking out loud or if his views signalled a serious long-term political intent. As far as we know, he's still trying to find out because he failed to locate Whittingdale and then he (the press officer) also managed to disappear without trace, much to the consternation of his colleagues. No-one else in Central Office knew anything about Whittingdale's pronouncements.

So you could argue that his initiative is irrelevant because the Conservatives, on current form, are hardly likely to win an election in the foreseeable future. But if we set aside that thought for a moment, just what does the market make of this latest policy initiative. Is it desirable? Is it workable?

Jim Marshall, the chief executive of MediaVest and the chairman of the IPA's media futures group, is far from impressed: "Even when the ad market was buoyant and growing at double-digit rates year after year, there was a recognition that if the BBC carried advertising there would have been serious consequences for the commercial sector. Now that the market is far tougher it could have a devastating impact. You'd have to give some licence fee money (or its successor) to commercial broadcasters such as Channel 4 to help them maintain their public service remit."

Marshall admits that a vision of the future in which the BBC carried ads might seem superficially attractive. In theory, it could counter some of the price pressures advertisers face, particularly in relation to continuing consolidation in the commercial TV market. He adds: "But, to be frank, any move that destabilised mass-appeal free-to-air broadcasting would not be good for advertisers."

Steve Platt, the managing director of Carlton Sales, is prepared to be even more apocalyptic. "This would just about finish commercial TV in this country, no matter what level it's allowed to take, because advertisers would fall over themselves to advertise on the BBC and it'd be able to sell at a massive premium," he says. "It would be a disaster even if it was taking £200 million a year. Any money taken out of the commercial sector would damage the ability of channels to generate programme budgets and it would be most detrimental probably to Channel 4 and five."

And the thing is, he adds, no-one wants this. "For advertisers now and in the long run there is more than enough commercial choice. You are talking about changing the whole broadcast landscape and the revenue streams on which it is based - and let's not forget the Government gets a revenue return from tax on qualifying revenue. For every £1 we would lose as a result of these proposals, the Government would lose around 20p. From a viewer's standpoint, commercial TV puts an awful lot into the broadcast landscape in terms of programmes, so it would deny viewer choice. Even advertisers will know it's a non-starter."

Advertisers have been thinking about it, and they beg to differ with Platt. Bob Wootton, the director of media and advertising at ISBA, says Whittingdale's ideas are certainly worthy of pursuit. "He is hedging at this stage, obviously, but we have always advocated advertising on the BBC. What we're not saying, though, is that the licence fee should be taken away and replaced entirely by advertising. That would result in the collapse of commercial broadcasting."

Wootton wants (and believes that the Conservative policy will advocate) some method of ensuring that total funding in the broadcast industry (licence fee plus advertising and sponsorship plus subscription and pay-per-view adds up to somewhere around £9 billion) remains constant during the transition phase. Put simply, though the BBC could get access to advertising, commercial channels could get licence fee funding if they produce public service programming, allocated by a sort of Arts Council of the airwaves.

An unwieldy system. And chronically unfair on broadcasters with no public services pretensions? Tough, Wootton says: all free-market companies face intense pressures and must find ways of overcoming them. "Our fundamental position remains clear - we would like to see advertising on BBC1, possibly BBC2, and on Radio 1 and 2. The other channels, such as BBC3, are not an issue. We merely argue advertisers should get access to every eyeball - as they do in all other civilised countries. The BBC would have little cause for complaint. It has been paying lip service to the whole idea of public service broadcasting and the BBC's director-general has been making a great job of preparing BBC1 in particular for future existence as a commercial channel," he concludes.